Bulletin: NY000123

Dear Associates:

Pursuant to Chapter 489 of the Laws of 1996, Section 253-b of the Tax Law was amended to add a new subdivision 1-a, which provides that on commercial credit line mortgages of less than $3,000,000, the mortgage recording tax will be imposed upon the maximum principal amount specified in the mortgage. A copy of the amendment is available from the New York City office. Once the tax is paid on that amount, no further tax is payable on advances or readvances made by the lender pursuant to the credit line mortgage.

You will recall that in 1985, Section 253-b was enacted which provided that with respect to 1 to 6 family owner-occupied residences or dwellings, the mortgage tax that could be imposed on a residential credit line mortgage was limited to the maximum principal amount specified in the mortgage. Once paid, no further tax would be due on later advances or readvances made pursuant to that mortgage. This "cap" on the amount of mortgage recording tax payable on residential credit lines has now been extended to commercial credit line mortgages, provided, however, that the maximum principal amount specified in such commercial mortgage is less than $3,000,000. Consequently, an exception for the imposition of mortgage tax on later advances or readvances will no longer be required on this category of commercial credit line mortgage.

Please note, however, that for commercial credit line mortgages of $3,000,000 or more, advances and readvances under such mortgages would be subject to (and an exception must be raised for) the imposition of additional mortgage recording tax, once the aggregate amount of advances exceed the face amount of the mortgage. On a technical note, the Commercial Revolving Credit Endorsement, which contains a mortgage tax exception, will probably have to be amended to limit such exception to mortgages where the principal amount specified therein is $3,000,000 or more.

This amendment will become effective on April 1, 1997, and shall apply to credit line mortgages recorded on or after that date. Until that date, all commercial credit line mortgages are subject to existing mortgage tax exception underwriting guidelines.

Should you have any questions regarding this memo, please contact Company Counsel.